MARKET WRAP – TAKING THE ELEVATOR DOWN
There’s an old saying on Wall Street that stocks take the stairs up and the elevator down. Boy was that true today. You might even say that some people took an even faster way down – out the window. If you’re living in Greece, Spain or Portugal that probably sounds pretty good right about now. Today was a disastrous day on just about any level. Technically, the volume was very high and breadth was very negative at almost 6:1. It was also a 90% down day. Fundamentally, Europe could very well be broken.
On Sunday evening we wrote:
“Aside from the fact that this is almost certainly not a buying opportunity, let’s just hope that we don’t confront similar Euro problems down the road. I think that is 100% impossible as the problems here cannot be resolved with bailouts, but only by a restructuring of the European Monetary Union. Unfortunately, the Greek bailout now guarantees that it will take a much larger and far more damaging event to wake the EMU up to the true flaws that are at hand here….”
Nonetheless, investors piled into stocks on Monday as hopes of a Greek bailout looked promising. Unfortunately, the market has called the EMU’s buff and now the problems have potentially worsened. Greece is no longer the concern as the markets focus on Portugal and Spain. I find it hard to believe that the Germans can pass the Greek bailout now that they know the market could care less for it. It would be an effective waste of a huge amount of money. There truly is no happy ending to all of this. I think we are witnessing the beginning of the end of the EMU (how long that takes to unfold is beyond me). The currency is fatally flawed and has been exposed as such. Unfortunately, it is the people of Europe who will now suffer at the decisions of a few central bankers. I fear they will paper over the problems in a flawed attempt to maintain unity. The “Scott Norwood kick of the can” is quickly turning into a Pele like kick – extraordinarily hard….
Stocks closed lower by 2.4% today. I have maintained that the risks are extraordinarily high in this market and today does nothing but confirm such thinking.
From Daily Futures:
U.S. Economy
Today felt like a liquidity crunch as the June U.S. T-bonds closed up 1.09/32nds at 120, the highest this year. The stock market is lower (at the time of this writing) with growing concerns that Europe’s debt problems are not going away, even after yesterday’s announcement of 110 billion euros of aid available to Greece.
The U.S. Commerce Department said that factory orders were up 1.3% in March, better than expected.
The National Association of Realtors said that its index of pending home sales was up 5.3% in March and up 21.1% from a year ago. July lumber finished down $7.30 at $293.10, the lowest close in four weeks.
Grains and Cotton
There is talk of possible frost in the forecast for the north-central U.S. late this week. July wheat finished up 10.25 cents at $5.12, the highest close in eight weeks.
After yesterday’s close, the USDA said that:
68% of the corn crop was planted.
15% of the soybean crop was planted.
26% of the cotton crop was planted.
60% of the spring wheat was planted.
68% of the winter wheat was rated good to excellent, down from 69% a week ago.
July corn ended down 2.5 cents at $3.69.
Sugar
Sugar prices continue to sell lower, hurt by expectations for plenty of production later this year and a rising U.S. dollar. July sugar closed down .47 at 14.51, the lowest close in a year.
Metals
June gold started the day higher, but closed down $14.10 at $1,169.20 as anxieties increased over Europe’s debt problems.
An index of manufacturing in China fell from 57.0 to 55.4 in April, the lowest in six months, but still a sign of expansion. July copper fell 11.5 cents to $3.1785 with simultaneous pressure from China, Europe, and the dollar.
Currencies
The Reserve Bank of Australia met and increased its interest rate from 4.25% to 4.50%, as expected. Some are saying that this may be the end of the rate increases for a while. The June Australian dollar fell 1.83 cents to 90.41, the lowest close in five weeks.
Yesterday’s announcement of a 110 billion euro financial bailout for Greece has not calmed all fears. One of the concerns is that the Greek Parliament will not be able to deliver the budget austerity that the aid depends on. The June euro closed down 2.09 cents at $1.3005, the lowest close in over a year.
ECB will step in and buy govt bonds…Fed and BoE have already done it, ECB has been a bit more austere on this front (pun intended!) but will buckle and do it. Witness what happened when Fed bought MBS and Treasuries, there is a possibility that this may well work short term.
Haris07,
What’s short term? 6 month, 1 year.
In the end you always have to pay the piper.
That would definitely break the no bailout clause in the treaty. Would the Germans ever put up with that? It would threaten price stability if the ECB had to fork over $750B in notes.
Doing so would blatantly break the Maastricht. It would also be enormously onctroversial. The Germans are better off leaving the EMU than allowing the ECB to do that. It would in essence be admitting the the single currency system has failed.
If they resort to this then they might as well just bring back the old currency systems.
what is everyone betting? The crash of Euro now? When everyone does not see a solution, the solution is coming. Something will happen.
It will be interesting now to see if the gold and silver manipulators can still stop the price of PMs from escalating to a more normal market level. The rush to the USD may be a near term counterbalance, but certainly not in the mid term.
If the idea that currency can be likened to a mountain of snow, it would make sense to have adopted a system that would have portion out just enough snow to pay for governmental expenditures for a specific period of time. Of course, the cost of the planned expenditures cannot exceed the amount of snow allocated for any given period. Ultimately, the collected snow (tax) from citizens would replace the snow taken off the mountain and keep the supply stable. Things got out of control when someone got the bright idea of using a snow ball, which automatically puts gain on gain and things went to hell. When a snow ball is dropped at the mountain top, it keeps increasing in size as it collects more and more snow, eventually leaving the mountain bare. What’s more, is that when the snow ball gets to the bottom of the mountain, its size gets too big for its creators to move. Consequently, it has to stop rolling and the snow begins to melt and evaporate. All the attempts by the government to make artificial snow won’t stick on the mountain, because the economic climate does not have the right temperature for it to stick. The right temperature being made up of jobs, productivity, sales, growth etc..The point is that anything without limitations place on it, is destined to collapse on itself. The architects behind this scheme, are the few, whose agenda and greed outweighs the needs of the many. There are many systems that can solve this problem, but greed has to be rooted out first and that’s a tall order. In the mean time, we should all be buying boats to escape the imminent flood.